Stocks rallied sharply Tuesday as Wall Street seems to be forgetting about the credit crunch that worried investors so much just a couple of weeks ago.  Is the trouble behind us or will it come back to haunt us again this fall?

The S&P continues to show signs of life and it is possible the recent low was a successful test of the washout low we saw in mid-August.  If we knew for sure it would be a no brainer to buy here, but there is always a possibility of another shakeout being triggered by any new development in the subprime / credit crunch fiasco.


                                   Charts provided courtesy of www.decisionpoint.com

One very positive development is the strength we are seeing the technology heavy Nasdaq.  There is some indication that technology may not be as affected by the subprime problems as some other industries.  When technology and the Nasdaq lead the way, the rest of the market tends to follow.  The Nasdaq has now taken out the prior rally's high.  I suspect the S&P won't be too far behind.


                                   Charts provided courtesy of www.decisionpoint.com

In the short-term, we are seeing some extreme overbought readings in some indicators.  The NYSE McClellan Oscillator is very stretched to the upside.  This is not necessarily a bad sign for stocks.  On the contrary - after what could be a short pause in the rally, the extreme overbought reading can be an indication of future strength.  


                                  Charts provided courtesy of www.decisionpoint.com

Again looking at the short-term, the 10-day moving average of the OEX Index is showing that the "smart money", which started to buy heavily just before and after the big washout, are starting to back off a bit.  This could mean a few days or more of at least a stall in the action action for stocks.  That's just fine with me because I am again looking for a place to buy.


                                  Charts provided courtesy of www.decisionpoint.com

Last year's rally, which started last summer, moved relentlessly higher giving us very little opportunity to buy.  This recent correction (defined as a 10% or more pullback) gave us an opportunity.  I don't want to miss out again so I will be looking to buy any weakness, which I suspect may not be more than a 2% to 5% dip.  

Trader Fred's TSP Trader System remains in the F-fund as that strength charge refuses to move higher.  A couple of Trader Fred's new S-fund submodels, which is still in a testing phase, gave a buy signal after yesterday's close, but since he is still monitoring these signals he does not recommend acting on them. 

The EbbChart System will be in the F-fund today after capturing the recent rally.  The system is now up an incredible 23.5% for 2007.  It is very impressive and there has been a lot of interest in the system.  Just remember, this system can be volatile and could see large swings.  If you decide to follow it, expect a wild ride, but the reward may be worth the trip.  Consider your investment objective before using any system.

Divot has posted a new Market Debrief commentary, and the Fedsmith has a new TSP Corner article to share with us.

All three of our trading systems will be out of the market the next few days.  If they are right and we get a modest dip in stocks, perhaps it will give us another decent buying opportunity.

That's all for today.  I am currently 100% G fund for now.  See you back here tomorrow.

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